July 5, 2022

Finance & Economy

Let's Talk About Investment

Here’s How Student Loan Repayment Will Work When Student Loan Relief Ends

Here’s how student loan repayment will work when student loan relief ends.

Here’s what you need to know.

Student Loans

After more than 20 months of temporary student loan forbearance for millions of student loan borrowers, student loan relief is ending January 31, 2022. The Biden administration has confirmed that the fourth extension of student loan relief due to the Covid-19 pandemic that President Joe Biden announced in August will be the final one. (That said, student loan forgiveness is still alive). This means that beginning February 1, 2022, your federal student loan payments will resume with your normal interest rate.

As first reported by Politico, through a Freedom of Information Act request, the Biden administration has crafted a game plan for your student loans known as “return to repayment.” Here’s how student loan repayment could look for you starting early next year:

What happens if you miss a student loan payment

It’s possible that once student loan payments resume that you may miss a student loan payment. Typically, a missed or late student loan payment could hurt your credit score. (Don’t expect student loan forgiveness). The Education Department, according to Politico, is considering providing student loan relief to student loan borrowers who miss a student loan payment during the first 90 days after student loan payments resume. So, if you miss a federal student loan payment during this time period, your credit score wouldn’t be adversely impacted. Instead, your student loan servicer would place you in student loan forbearance, which would show that you would be current on your student loan payments.

Income-driven repayment plans could change

The Biden administration is exploring ways to make student loan repayment simpler for student loan borrowers. (Major changes to student loan forgiveness may come this week). Income-driven repayment plans such as IBR, PAYE, REPAYE and ICR help student loan borrowers with federal student loans by basing monthly student loan payments on income, family size and state of residence. Student loan borrowers must recertify their income annually. According to Politico, the Education Department is considering a proposal, for a limited time, to allow student loan borrowers to certify their income and family size over the phone. This would streamline the income certification process and help student loan borrowers potentially to get a lower student loan payment. With income-driven repayment plans, it’s possible to get a monthly federal student loan payment as low as $0.

Help for these student loan borrowers

The Education Department plans an outreach campaign to specific student loan borrowers who were at-risk before the Covid-19 pandemic. This includes, for example, student loan borrowers who didn’t complete their degree, who entered student loan default before the Covid-19 pandemic, and student loan borrowers who recently started student loan repayment. (Here’s how to get approved for student loan forgiveness).

Student loan borrowers in student loan default

Sen. Elizabeth Warren (D-MA), a champion for student loan borrower rights, has argued that there will be a surge in student loan delinquency and student loan default once federal student loan payments resume. Warren and other members of Congress have repeatedly asked the Biden administration to postpone the restart of student loan payments. According to Politico, the Education Department is considering a plan called “Operation Fresh Start,” which hasn’t been finalized, which could specifically help provide student loan relief to 7 million student loan borrowers who are in federal student loan default. (Student loan forgiveness won’t be available to everyone, but this plan is available now).

Student loan servicers: more customer service

The Education Department recognizes that when student loan payments restart that student loan borrowers will have questions about their student loans and student loan repayment. With increased oversight over student loan servicers, it’s possible that student loan servicers will increase staffing and hours of availability for customer service. The Education Department plans to expand hours to field more questions on student loans.

Student loans: next steps

While student loans will restart soon, it’s important to note that these plans are a work in progress and are subject to change. (If Biden doesn’t cancel your student loans, do these 3 things). The Biden administration has been focused on targeted student loan cancellation and other student loan relief to help student loan borrowers transition smoothly to federal student loan payments. (Student loan forgiveness: how much and how to get it). These additional measures are intended to provide incremental financial support as student loan borrower re-enter student loan repayment. The good news is you don’t have to wait until next year to conquer your student loans. Start getting organized now. Understand all your options for student loan repayment. Here are some popular ways to save money with your student loans:

Student Loans: Related Reading

Biden cancelled $11.5 billion of student loans, but here’s what it means for student loan forgiveness

Student loan forgiveness won’t be available to these borrowers

Major changes to student loan forgiveness may come this week

How to get student loan forgiveness